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Development Overview

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Overview of Korea’s development experience

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Development Overview
Official Aid Multi-Sector

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Multi-Sector

Public loan projects

Public Loan Projects
 
1. Overview
 
Among the various types of development aid and assistance Korea has received so far, the Korean government has maintained the most systematic and extensive records on public loans for projects and programs.

 Both official development assistance (ODA) and non-ODA public loans are included in the overall scope of development aid discussed here. Public loans are defined here as external funds borrowed by the Korean government for national development purposes. Korea’s public loans can be further divided between ODA and non-ODA types, the details of which we discuss here. Whether provided as part of ODA or not, public forms of capital and financial support hold significance on their own and as such merit analysis and examination against the backdrop of their surrounding contexts.

To aid in our examination of the history of public loans in Korea, we borrow the categories and concepts set out by the Ministry of Finance and Economy, the main governmental agency in Korea that handles public loans. As of the end of 2002, Korea had taken out a total of USD 45.131 billion for 505 development projects. Of this amount, USD 39.431 billion was withdrawn, and USD 22.721 billion repaid, with the remaining balance amounting to USD 16.62 billion.

Public loans from bilateral and multilateral sources (the latter including the IBRD and other international development organizations) share almost equal parts. Loans from multilateral sources, in particular, form 52.4 percent or so of all loans, which is a significantly larger share than the case with development aid.

The International Bank for Reconstruction and Development (IBRD) occupies a central place in the history of public loans in Korea, as the organization has provided USD 15.609 billion so far for 123 development projects. Korea had taken out USD 15.029 billion of this amount in loans by the end of 2002. Provided for the most part as long-term financing, the remaining balance of IBRD loans Korea must repay currently stands at USD 7.837 billion.

The United States and Japan, the two biggest donors of bilateral ODA for Korea, are also the two single largest providers of public loans for Korea. Of the USD 39.341 billion that Korea owes in terms of bilateral public loans, 13.2 percent and 21.5 percent came from the United States and Japan, respectively, together accounting for more than one-third of all the bilateral public loans Korea has received so far.
 
<Details of Korea’s Public Loans1>
(Unit: USD 1,000,000)
 

Type Multilateral sources Bilateral sources Total
IBRD2 ADB Subtotal U.S. Japan Other Subtotal
Project number 123 79 202 100 114 89 303 505
Agreed amount 15,609 6,360 21,969 7,237 10,284 5,641 23,162 45,131
Amount received 15,029 5,593 20,622 5,180 8,480 5,059 18,719 39,341
Outstanding balance 7,192 1,676 8,868 4,563 6,250 3,040 13,853 22,721
Remainder 7,837 3,917 11,754 617 2,230 2,019 4,866 16,620

Notes: 1. As of December 2002.
         2. Including eight IDA projects.
Source: Current State of Korea’s Public Loans, Ministry of Finance and Economy, April 2003.
 
These public loans were mainly channeled into social overhead capital (SOC) facilities and market restructuring, two categories which together accounted for 62.2 percent of all public loans. In particular, Korea began to take out massive public loans for its economic restructuring project in the aftermath of the Asian Financial Crisis of 1997, including USD 7 billion and USD 3.7 billion from the IRBR and the ADB, respectively, as emergency restructuring funds. Another major category is private-sector industries, for which Korea has taken out USD 5.702 billion in loans so far, including funds for fostering small and medium businesses (SMBs).
 
<Korea’s Public Loans by Sector>
(Unit: USD 1,000,000)
 

Sector Agreed amount Amount received Outstanding balance Remainder
Agriculture, fishery, tourism 1,799 1,707 1,551 156
Private sector support 6,131 4,942 3,673 1,269
SMBs 817 760 684 76
Housing 625 576 514 35
Medical care 619 549 415 134
Environment 262 221 133 88
Education, R&D 1,799 1,734 1,233 501
Local development 2,083 1,338 1,109 229
Economic restructuring 11,873 11,544 811 10,733
SOC 14,591 12,928 10,141 2,787
Grain purchases 2,203 2,153 1,726 427
Other 2,329 889 704 185
Total 15,131 39,341 22,721 16,620

Source: Working Paper Analysis on Public Loans, Ministry of Finance and Economy, September 2003.
 
The amount of public loans for each sector began to increase dramatically in the late 1970s, reaching its peak in the 1990s. Much of the public loans that Korea took out in the 1990s, however, were put toward emergency economic and financial restructuring in the aftermath of the Asian Financial Crisis. Public loans for economic and social development therefore flourished in the 1970s and the 1980s.
 
<Korea’s Public Loans by Sector>
(Unit: USD 1,000,000)
 

Sector 1960s 1970s 1980s 1990s Total
Agriculture, fishery, tourism 80 1,252 331 43 1,706
Private sector support 161 1,386 801 2,593 4,941
SMBs 122 126 316 197 761
Housing - 95 381 100 576
Medical care 3 103 322 122 550
Environment - 2 77 142 221
Education, R&D 17 288 918 511 1,734
Local development 30 173 1,1018 117 1,338
Economic restructuring - 260 550-10,734 11,544  
SOC 409 4,313 5,301 2,905 12,928
Grain purchases 197 1,214 742 - 2,153
Other 71 262 171 440 8891
Total 1,090 9,474 10,928 17,9004 39,341

Note: 1. Excluding the USD 55 million that had been erroneously included in the original text.
Source: Ministry of Finance and Economy, September 2003.
 
The IBRD, the Asian Development Bank (ADB), and other such multilateral financial and development organizations have provided USD 20.581 billion, or slightly more than one-half, of all the public loans Korea has received. The World Bank group, which includes the International Development Association (IDA) and the IBRD, represents 40.2 percent of all Korea’s public loans. Furthermore, Japan, the United States, and France together account for 43 percent of all the public loans Korea has secured from bilateral sources. Of these, Japan alone accounts for 22 percent.
 
<Korea’s Public Loans by Source>
(Unit: USD 1,000,000)
 

Source Amount received Proportion (%)
Multilateral sources 20,581 52.2
  IDA 116 0.3
  IBRD 14,935 37.9
  ADB 5,530 14.0
Bilateral sources 18,760 47.8
Japan 579 1.5
  OECF1 3,694 9.4
  JEXIM2 3,017 7.7
  FAOJ3 1,198 3.0
United States 4,998 12.6
  PL480 868 2.2
  AID 570 1.4
  EXIM4 3,560 9.0
France 3,494 8.9
Germany (KFW)5 380 1.0
Other 1,400 3.7
Total 39,341 100.0

Notes:
1. Overseas Economic Cooperation Fund
2. Export-Import Bank of Japan
3. Food Agency of Japan
4. Export-Import Bank of the United States
5. Kreditanstalt Für Wiederaufbau (Reconstruction Bank of Germany)
Source: Ministry of Finance and Economy, September 2003.

Source: Korea International Cooperation Agency. 2004. Study on Development Aid and Cooperation for South Korea: Size, Scope and Exemplary Effects. Seoul.

 

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2. Public Loans and Concessional Terms
 
The progress and evolution of economic development in Korea not only affected the specifics and purposes of the development projects it pursued, but also the terms and nature of the public loans it secured.

For analysis purposes, we reduced the 505 cases of public loans that Korea has taken out so far to 493 cases by integrating unit projects of the same category or purpose. We then divided them between  concessional loans (227) and non-concessional ones (266). Such categorizations helped us to identify and determine patterns of change in loan make-up over time.

Moreover, we borrowed the sectorial categories used by the IBRD and the Development Assistance Committee of the Organization for Economic Cooperation and Development (OECD/DAC). The Korea International Cooperation Agency (KOICA) also utilizes the CRS codes in its KOICA Aid Statistics published annually.

Much of the 493 public loans that Korea has received went to expanding economic substructure and the basis for production. Of the USD 36.723 billion provided in public loans, USD 12.682 billion was channeled into building and expanding transportation, communications, and energy infrastructure, and another USD 6.145 billion into developing agriculture, manufacturing, and other industries. Together, these categories take up 51 percent of all public loans. In the meantime, the total amount of public loans earmarked for social substructure and services, such as education, healthcare, and housing, was a mere USD 3.001 billion, or less than 10 percent. On the other hand, much aid was provided in the forms of commodities and general programs, particularly for emergency economic restructuring.
 
<Korea’s Public Loans by Sector>
(Unit: USD 1,000,000)
 

Sector Amount taken out Proportion (%)
I. Social substructure 3,001.5 8.2
  1. Education
1,251.8 3.4
  1. Healthcare and population control
428.0 1.2
  1. Housing, water resources, etc.
1,321.7 6.3
II. Economic substructure 12,682.1 34.5
  1. Transportation
5,321.8 14.5
  1. Communications
1,287.5 3.5
  1. Electricity and energy, etc.
6,072.8 16.5
III. Production 6,145.2 16.7
  1. Agriculture
828.2 2.2
  1. Manufacturing and mining
5,278.5 14.4
  1. Construction, trade, tourism, etc.
38.5 0.1
IV. Multi-sector 1,421.2 3.9
  1. Environment and women
613.5 1.7
  1. Local development, etc.
807.7 2.2
V. Commodities and general programs 13,473.1 36.7
  1. Grains and other commodities
1,736.3 4.7
  1. Economic restructuring, etc.
1,736.3 32.0
Total 36,723.1 100.0

 
An interesting pattern emerges as well in the division between concessional and non-concessional public loans. Korea has heavily favored non-concessional public loans (G.E. 25 percent or less) with respect to certain sectors, such as the economic substructure, production, and economic restructuring. In other words, of the public loans with a G.E. of 25 percent or more, a relatively significant portion (17.35 percent) was earmarked for social substructure projects. However, only 6.6 percent of public loans with a G.E. of 25 percent or less went to the same sector. This indicates that social development has been relegated to a relatively low-priority position on the list of development projects for which Korea has used public loans.
 
<Korea’s Public Loans by Sector and Purpose>
(Unit: USD 1,000,000)
 

Sector / purpose G.E. 25% or higher Less than G.E. 25% Total
Social substructure 958.4(17.3) 2,043.1 (6.6) 3,004.5 (8.2)
Economic substructure 1,753.0 (31.7) 10,929.1 (35.0) 12,682.1 (34.5)
Production 1,178.6 (21.3) 4,966.6 (15.9) 6.145.2 (16.7)
Multi-sector 312.2 (5.7) 1,109.0 (3.6) 1,421.2 (3.9)
Other general programs 1,325.3 (24.0) 12.147.8 (38.9) 13,473.1 (36.7)
Total 5,527.5 (100) 31,195.6 (100) 36,723.1 (100)

Note: Figures in parentheses represent the respective shares (%).
 
A chronological overview of Korea’s public loans reveals yet another clear pattern. That is, there has been a gradual, yet clear, shift from concessional loans to non-concessional loans over time. Korea no longer took out development loans of an aid-like nature in or after the 1990s.

On the other hand, the proportion of non-concessional loans that began to increase dramatically in the latter part of the decades of development reached a new peak in the 1990s. Concessional loans that made up the majority of Korea’s public loans in the early years of its development gave way to non-concessional ones later on starting in the development decades through to the period of Korea’s transition from a recipient to a donor country.
 
<Korea’s Public Loans by Decade>
(Unit: USD 1,000,000)
 

Type 1959-1975 1976-1990 1991-1999 Total
(Proportion, %) (Proportion, %) (Proportion, %) (Proportion, %)1
Concessional loans 2,030.8 3,496.7 - 5.527.5
(Proportion, %)2 (56.0) (22.2) (0.0) (15.1)
(36.7) (63.3) (0.0) (100.0)
Non-concessional loans 1,597.7 12,250.2 17,347.7 31,195.6
(Proportion, %) (44.0) (77.8) (100.0) (84.9)
(5.1) (39.3) (55.6) (100.0)
Total 3,628.5 15,746.9 17,347.7 36,723.1
(Proportion, %) (100.0) (100.0) (100.0) (100.0)
(9.9) (42.9) (47.2) (100.0)

Notes: 1. Indicates the respective shares of concessional and non-concessional public loans in each given decade.
2. Indicates the proportion of the public loans of either type that were taken out in each given decade.
 
Concessional loans with a G.E. of 25 percent or higher were all introduced in the early period of development. Once Korea began the process of its transformation from recipient to donor country in 1991 and afterward, not a single concessional loan was taken out. Since the 1990s, Korea has also significantly increased the amount of loans it invested in social substructure and multi-sector projects, even though economic substructure and production continued to reign as the two highest priorities. Nevertheless, the relative importance of social, environmental, and local development as well as such services as education and healthcare began to increase later on in the development decades. On the contrary, loans in the forms of commodities, including grains, which had made up a significant part of the public loans in the early period of development drastically decreased by the later years.

As the amount of public loans increased dramatically in the latter part of the development decades, the proportion of non-concessional public loans with a G.E. of less than 25 percent also increased significantly, particularly with respect to expanding Korea’s economic substructure and industrial production. During the transition period that began in the 1990s, the amount of public loans for economic and social development plummeted, while emergency loans for economic and financial restructuring increased steeply.
 
Concessional Public Loans by Decade and Sector>
(Unit: USD 1,000,000)
 

Sector 1959-1975 1976-1990 1991-1999 Total
I. Social substructure 154.1 (7.6) 801.3 (23.0) - 958.4 (17.4)
  1. Education
46.9 293.2 - 340.1
  1. Healthcare and population control
7.8 302.1 - 309.9
  1. Housing, water resources, etc.
99.4 209.0 - 308.4
II. Economic substructure 463.5(22.8) 1,289.5 (36.9) - 1,753.0 (31.7)
  1. Transportation
243.1 637.9 - 881.0
  1. Communications
107.8 622.7 - 730.5
  1. Electricity and energy, etc.
112.6 28.9 - 141.5
III. Production 522.3 (25.7) 656.3 (18.8) - 1,17836 (21.3)
  1. Agriculture
178.9 413.0 - 591.9
  1. Manufacturing and mining
343.4 243.3 - 586.7
  1. Construction, trade, tourism, etc.
- - - -
IV. Multi-sector 26.1 (1.3) 286.1 (8.2) - 312.2 (5.6)
  1. Environment and women
7.3 226.1 - 233.4
  1. Local development, etc.
18.8 60.0 - 78.8
V. Commodities and general programs 864.8 (42.6) 460.5 (13.1) - 1,325.3 (24.0)
  1. Grains and other commodities
55.1 - - 55.1
  1. Economic restructuring, etc.
809.7 460.5 - 1,270.2
Total 2,030.8 (100) 3,496.7 (100) - 5,527.5 (100)

Note: Figures in parentheses represent the respective shares (%) in each given period.
 
Non-Concessional Public Loans by Decade and Sector>
(Unit: USD 1,000,000)
 
 

Sector 1959-1975 1976-1990 1991-1999 Total
I. Social substructure 174.3 (10.9) 1,374.7(11.2) 494.1(2.9) 2,043.1(6.6)
  1. Education
52.5 551.2 308.0 911.7
  1. Healthcare and population control
32.0 - 86.1 118.1
  1. Housing, water resources, etc.
89.8 823.5 100.0 1,013.3
II. Economic substructure 552.6 (34.6) 6,835.4 (55.8) 3,541.1 (20.1) 10,929.1 (35.0)
  1. Transportation
403.3 1,825.5 2,219.9 4,440.7
  1. Communications
79.6 477.4 - 557.0
  1. Electricity and energy, etc.
69.7 4,532.5 1,329.2 5,931.4
III. Production 605.9 (37.9) 2,436.7 (19.9) 1924.0 (11.1) 4,966.6 (15.9)
  1. Agriculture
63.1 173.1 - 236.2
  1. Manufacturing and mining
504.3 2,263.6 1,924.0 4,691.9
  1. Construction, trade, tourism, etc.
38.5 - - 38.5
IV. Multi-sector 141.7 (8.9) 752.4 (6.1) 214.9 (1.2) 1,109.0 (3.6)
  1. Environment and women
4.8 160.4 214.9 380.1
  1. Local development, etc.
136.9 592.0 - 728.9
V. Commodities and general programs 123.2 (7.7) 851.0 (7.0) 11,173.6 (64.4) 12,147.8 (38.9)
  1. Grains and other commodities
123.2 287.8 - 411.0
  1. Economic restructuring, etc.
- 563.2 11,173.6 11,736.8
Total 1,597.7 (100) 12,250.2 (100) 17,347.7 (100) 31,195.6 (100)

Note: Figures in parentheses represent the respective shares (%) in each given period.
 
Another important aspect of Korea’s public loans is found in a comparison of their providers. Interestingly, the majority of public loans from multilateral financial organizations are non-concessional, with a G.E. of less than 25 percent. Ninety-nine percent of the loans from the IBRD and the ADB, the two leading multilateral providers of public loans for Korea, are non-concessional. Japan and the United States, the two leading bilateral sources of public loans for Korea, have provided loans that are 46.7 percent and 37.8 percent concessional, respectively. France, on the other hand, has provided non-concessional loans only so far. Canada, Belgium, and the United Kingdom have also provided non-concessional loans. Germany, on the other hand, has provided much more in concessional loans than non-concessional loans. Saudi Arabia has also provided non-concessional loans only, albeit on a relatively small scale.
 
(Unit: USD 1,000,000
 

Source/Type G.E. 25% or higher Less than G.E. 25% Total
Multilateral 300.1 (1.6) 20,235.0 (98.4) 20,535.1 (100)
IDA 115.6 (100.0) () 115.6 (100)
IBRD 147.0 (1.0) 14,671.9 (99.0) 14,818.9 (100)
ADB 37.5 (0.7) 5,555.7 (99.3) 5,593.2 (100)
EC () 7.4 (100.0) 7.4 (100)
Bilateral 5,277.4 (32.3) 10,960.6 (67.7) 16,188.0 (100)
Japan 2,861.3 (46.7) 3,262.8 (53.3) 6,124.1 (100)
United States 1,958.8 (37.8) 3,221.2 (62.2) 5,180.0 (100)
France () 2,488.8 (100.0) 2,488.8 (100)
Canada 0.7 (0.2) 460.4 (99.8) 461.1 (100)
Germany 305.5 (81.0) 71.5 (19.0) 377.0 (100)
Belgium () 231.4 (100.0) 231.4 (100)
Sweden () 160.8 (100.0) 160.8 (100)
Saudi Arabia 96.6 (100.0) () 96.6 (100)
United Kingdom () 72.7 (100.0) 62.7 (100)
Denmark 2.8 (100.0) () 2.8 (100)
Netherlands 1.7 (100.0) () 1.7 (100)
Hong Kong 1.0 (100.0) () 1.0 (100)
Total 5,527.5 (100.0) 31,195.6 (84.9) 36,723.1 (100)

Note: Figures in parentheses represent the respective shares (%) of different types of loans.
 

Source: Korea International Cooperation Agency. 2004. Study on Development Aid and Cooperation for South Korea: Size, Scope and Exemplary Effects. Seoul.